These Cold Stocks Are Heating Up

When a stock's share price is lower than a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as the market warms to a stock's prospects, its price can heat up in a hurry. Alas, you can rarely tell that a stock is melting investors' hearts until after it's made that upward leap.

Taking the market's temperature

But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 180,000-plus members, offer a great way to monitor investor sentiment. Following a CAPS rating trend can help us determine the best time to invest. Let's look at previously rated one- or two-star companies that have recently enjoyed a bump in investor confidence and see whether they're truly heating up -- or headed back to the deep freeze.

Company

CAPS Rating (out of 5)

Recent Price

Est EPS Growth Next Year

Coinstar (Nasdaq: CSTR  ) *** $41.74 22%
James River Coal (Nasdaq: JRCC  ) *** $7.18 (87%)
Solazyme (Nasdaq: SZYM  ) *** $10.09 30%

Sources: Motley Fool CAPS, Yahoo! Finance.

Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should, too. 

From red envelopes to Redbox

How many more ways can Netflix (Nasdaq: NFLX  ) think to drive customers to rival Coinstar? Raise prices, slash value, eliminate a well-known -- and until last week -- well-respected brand name, and make it look for all intents and purposes like you're not so interested in delivering what you're best known for. I'm pretty sure Coinstar itself couldn't have orchestrated a better marketing ploy for its movie rental services if it tried. Somewhere, Blockbuster is laughing.

Now, not all of the criticism of Netflix is valid -- the DVD rental-only viewer, for example, saw his subscription price drop, not rise. But the appearance of Netflix's actions certainly don't help the company's short-term value proposition, and as is so often the case, perception is reality. Coinstar, on the other hand, remains what it always has been -- a convenient, low-cost movie rental option that is actually expanding services for its customers by renting games. By all appearances, Coinstar is the growth company; Netflix is on the wane.

To my thinking, Netflix made too big of a bet on streaming video and did it too soon. It chose a distribution means that it cannot control and could get locked out of very easily. The DVD is not disappearing anytime soon, and Coinstar could soon be viewed as the rational play for rentals. There's even hope of a renaissance for Blockbuster-branded kiosks now.

The defection of subscribers from Netflix will be Coinstar's gain, and CAPS member rcjansen finds the ubiquity of the Redbox kiosk making their defection only that much easier.

I like Coinstar at this time because of their Redbox kiosks that rent DVDs. Netflix is giving them business as Netflix just raised prices 60% in one jump and Netflix online streaming service does not have recent releases and is having difficulty maintaining [existing] content. This makes Coinstar a better value choice for customers at 1.00 per night DVD rental.

Add Coinstar to your watchlist and share your own views on the Coinstar CAPS page on whether this spells the demise of Netflix.

Price is what you pay
Coal miner James River Coal is caught up in the collapse of the mining sector just as much as Patriot Coal (NYSE: PCX  ) or Cliffs Natural Resources (NYSE: CLF  ) . Falling prices of metallurgical coal have hit the earnings of coal companies hard, and some analysts expect further price decreases.

It was a particularly ironic turn of events for James River, which earlier this year had purchased met coal producer International Resource Partners. The move doubled its size and expanded its presence in the sector as a means of capturing the prices that were rising at the time, particularly in Asia, on soaring coal and steel demand.

Flooding in Australia helped pushed prices higher, but those reserves will soon come back online and will be part of the downward pressure miners feel. Still, the long-term outlook for coal demand is high, and the depressed stock prices in the mining sector might make this an opportune time to get in.

With 87% of the CAPS members weighing in on James River thinking it will outperform the broad market averages, it's apparent they see it surviving the rough times, but add James River Coal to your watchlist to see how it plays out.

Military muscle
Because the military is under the gun to reduce its reliance on fossil fuels by 50% by 2020, all sorts of alternative energy sources are being contemplated. Several years ago, the Air Force started looking at the work Syntroleum and Tyson Foods (NYSE: TSN  ) were doing in developing biodiesel plants that will use low-grade chicken fat and grease that's too impure to use in traditional biodiesel conversion processes. Solazyme has the Navy experimenting with its algae-based renewable fuel.

Is this a realistic goal? The influential RAND Report thinks it's pie in the sky stuff, as it won't be commercially viable soon enough and won't reduce emissions. While the Defense Department pushed back on the report, it makes companies like newly IPO'd Solazyme a speculative investment at best.

I marked Solazyme on CAPS to underperform the market because I have serious doubts its technology will be widely adopted, and I find the likelihood of the military's mandate being reversed high indeed. Share your thoughts on the Solazyme CAPS page and the stock to your watchlist to see if it still blooms.

Checking the mercury
Are these stocks invitingly warm or bitterly frosty? It pays to start your research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Then weigh in with your own thoughts on which stocks you think are hot little numbers, and which offer cold comfort. It's free to sign up.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Solazyme. Motley Fool newsletter services have recommended buying shares of Coinstar and Netflix, as well as creating a bear put spread position in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 26, 2011, at 8:59 PM, majorkq wrote:

    You have "serious doubts [solazyme's] technology will be widely adopted?" Thanks for the all the fact-based support for the opinion.

    Got a reason why perhaps?

    It couldn't possibly be because the technology is being supported by several large companies in many different industries could it? (DOW, CHEVRON, BUNGE, SEPHORA, UNILEVER, ROQUETTE)

    I mean its not exactly like these partnerships are favorable is it? (Roquette is paying for ALL the capital expenditures & all the working capital for a 50 metric ton facility that would've otherwise cost SZYM dozens of $ millions)

    Your reason must be because of all the new infrastructure that must be created to use SZYM's tech? (drop-in fuel for cars, using old fermentation technology)

    It definitely can't be because the technology produces a quality product? (Specifically tailored oils means creating the highest cut oils at ease that can equate to $200+/barrels of oil compared to crude)

    It's not like this tech can change the world can it? (apart from creating harder to find petroleum alternatives, SZYM's tech can convert NON-FOOD sources directly into heart-healthy oils thereby expanding the amount of food on the planet. SZYM has already created direct alternatives for flour, eggs, butter, vegetable oil with significant calorie reductions without a loss of flavor) http://www.time.com/time/specials/packages/article/0,28804,1...

    No, your opinion must have its reason somewhere... it can't merely be because you look at a falling stock price or glanced at a concept of algae fuels & still think its all sci-fi.

  • Report this Comment On September 27, 2011, at 10:36 AM, cfrdog wrote:

    I agree. Coinstar is poised for more growth with Netflix screwing up. I also find the Redbox machines to be easier to use than the Blockbuster machines, plus they have a leg up on the locations that are more convenient. I worry a little about the debit fees going up, seems like they are trying to rape Coinstar!

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